IRDAI issues exposure draft on compensating shareholder on merger of insurers

New Delhi: Regulator IRDAI has come out with draft regulations for determination of compensation to shareholders on merger of insurance companies, under which payment will be based on the residual value of assets.

"...compensation to the shareholders whose rights against the acquiring insurer has been reduced...shall be paid based on the residual value of the assets," said the exposure draft on which the Insurance Regulatory and Development Authority of India (IRDAI) has invited comments from the stakeholders by

November 20.

The residual value, it added, will be equal to the value of the assets of the acquired insurer as on the day immediately before the appointed day, less the total amount of liabilities.

Further, the compensation shall be "paid either in cash and/or in kind or partially in cash and partially in kind", it said.

Under Section 37A (4A) of the Insurance Act, 1938, the shareholders and members whose rights have been adversely impacted by the scheme of amalgamation or merger would be entitled to compensation.

IRDAI (Manner of Determination of Compensation to Shareholders on Merger of an Insurer under a Scheme Prepared under Section 37A) Regulations, 2020 also proposes for separate

provisions for payment of compensation for merger/amalgamation of the branch of a foreign reinsurer.